Catalonian crisis fuelling business exodus

Mirza Ahmad considers the business impact of Catalonia’s current crisis

Wednesday 22 November 2017

THE SCENES OF Catalonian protestors being forcibly prevented from taking part in a referendum on the region’s independence sparked a global outpouring of sympathy. Hundreds were hurt as voters clashed with police tasked with stopping the vote, which had been held illegal by Spain’s Constitutional Court. Since then, the crisis has only worsened. After an overwhelming vote in favour of independence, the Catalan Parliament unilaterally declared independence, which was shortly afterwards nullified by the imposition of direct rule by Mariano Rajoy, the Spanish Prime Minister.

One of the key grounds for the calls for independence has been the supposedly unfair contribution of Catalonia to the Spanish state; protestors proclaim “Madrid nos roba” – Madrid is robbing us. Despite accounting for 16 per cent of the population, it constitutes around 19 per cent of Spain’s GDP, more than any other region. Furthermore, it accounts for roughly one quarter of Spain’s total foreign exports. Barcelona, its capital city, is the fourth most powerful city by GDP in the EU, with over 5.5 million visitors a year. Yet the region paid nearly €10bn more in taxes than it received back. Despite its booming economy, the business world has not responded kindly to the political uncertainty. Since the referendum on 1 October, over 2,400 Catalan companies have moved their legal base out of the region, according to Spain’s National Company Registry. The Spanish government has happily encouraged this exodus, passing a decree making it easier for companies to shift to other parts of the country. The number of moves has spiked at key points in the situation. A high of 268 companies left the region on 19 October, after the passing of the deadline set by Rajoy for Carles Puigdemont, the Catalan leader, to stop seeking independence.

The crisis especially alarmed the financial sector; CaixaBank, Spain’s third largest bank and one of the biggest lenders in Catalonia, decided to move to Valencia a mere five days after the vote. Spain’s fifth largest banking group, Banco Sabadell, decided the same in an emergency meeting on 5 October. CaixaBank’s press release cited the need to “protect the interests of the bank’s customers, shareholders and employees” by ensuring it remains within the EU.

It is the latter concern – of remaining within the EU’s single market – which most worries businesses. Freixenet, an iconic Catalonian producer of Cava (sparkling wine), voiced fears of losing competitiveness if the region were subjected to tariffs in its trading with Europe. “We cannot run the risk of being outside the European Union,” said the CEO of the company. Luis de Guindos, Spain’s finance minister, claims that the domestic product of an independent Catalonia will be reduced by 30 per cent as a result of being outside the single market. These fears are substantiated; two thirds of Catalonia’s trade is with the EU, yet in the case of secession, rejoining the bloc would be difficult. The process for a nation joining the Union involves unanimous agreement by all existing members. It is likely that Spain would veto Catalonia’s membership.

Applied to the British situation, the Catalonian business exodus calls to mind David Cameron’s fears of an “economic bomb” if Britain were to leave the EU. Companies have begun to look at plans to move jobs to E u r o pean cities such as Frankfurt, highlighting fears about losing access to the single market. The Catalonia example underlines the significance of economic alignment with the EU, a troubling sign when the possibility of a “no-deal” Brexit is being seriously discussed at home.